A large body of research summarized by McLoyd (1998) links poverty to adverse outcomes for children in the areas of health, cognitive development, academic achievement, and socio-emotional or mental health outcomes. Increasingly sophisticated research designs control for background characteristics of families that might lead both to poverty and to adverse outcomes for children. These include longitudinal designs that follow children over extended periods of time so that the effects of income loss can be examined for children, controlling for more stable background characteristics, as well as comparisons of siblings who experience different economic environments growing up.

It is also possible to examine the associations of outcomes, such as poor achievement, with poverty experienced by children either before or after the outcome is measured. If poverty causes the outcome, then poverty experienced by children before the outcome is measured should have a larger association than poverty measured later. If the association of the outcome with poverty measured earlier is comparable to the association with poverty measured later, then the relationship is not likely to be causal. Under these circumstances, it is more likely that stable background characteristics explain both exposure to poverty and the poor outcome. Family income has stronger effects on children’s cognitive development and school achievement than on socio-emotional functioning, whereas social class, typically assessed by parental education and occupation, is more strongly associated with socio-emotional problems, especially externalizing symptoms. Studies suggest that the timing of poverty is unrelated to cognitive or socio-emotional functioning, but that poverty in the preschool years reduces ultimate educational attainment more than poverty experienced later. The effects of income on children’s outcomes are nonlinear; that is, additional income makes more difference for children at or near poverty than for children higher in the income distribution (McLoyd, 1998).

Poverty can have adverse effects on children's health, developmental status, mental health and behavior through various mechanisms or intervening variables. Several of the mechanisms by which poverty exerts its detrimental effects are particularly relevant to the situation of homeless children. Cognitive stimulation in the home environment, such as the presence of books and of toys that teach color, size, or shape, is important to cognitive development. Both loss of income and duration of poverty predict declines in the quality of the home environment and declines in children’s IQ. Poor nutrition, exposure to legal and illegal drugs prenatally, and exposure to lead in poorly maintained older housing can lead to poor health or impairment of neurological functioning. Teachers may perceive students who are poor and of low socio-economic status less positively and thus expect less of them, give them less positive attention, offer fewer learning opportunities, and provide them with less positive reinforcement when they do well. Economic stressors may lead to parental depression or harsh or inconsistent parenting, which are associated with socio-emotional problems in children. Poor children are exposed to more chronic stressors — from family conflict to overcrowding — and also to more stressful life events than non-poor peers. Their self-esteem may be eroded by circumstances such as living in poor housing or bad neighborhoods that mark their membership in a stigmatized group (McLoyd, 1998). Each of these mechanisms seems likely to be in play for homeless children living in doubled-up situations, although perhaps not to the same extent as for children living in shelter or without shelter or in hotels or motels. The effects of stigma associated with homelessness may go beyond the effects of material deprivation. Nutrition and crowding are considered in more detail below.

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